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The board of directors of Russian natural gas giant OAO Gazprom sounded another blast on its shale gas alarm Tuesday, questioning the environmental and economic viability of the process that is overhauling North American markets and promising to do the same in Europe.

"The production of shale gas is associated with significant environmental risks, in particular, the hazard of land surface and underground water contamination with chemicals applied in the production process," the board said in a statement, noting a French ban on shale development, and moratoria in Germany and South Africa and in New York and New Jersey.

Those concerns appear to be secondary, or at least connected, to Gazprom's economic skepticism. Pointing out that development is focused in North America, the board argued that land ownership, water rights and population density could challenge European shale.

As if that wasn't enough, the board also claimed that shale could be twice as expensive to develop in Europe as in North America because of a dearth of equipment on the continent.

"The meeting underscored that the previous year had not seen the distribution of any breakthrough technologies providing for a significant decrease in the shale gas production costs," the statement continued. "At that, more stringent environmental requirements for the companies developing shale gas may raise the shale gas production costs."

Those statements highlight Gazprom's continued insistence that while shale gas might be able to rattle North America, where Gazprom set up shop in 2009, it doesn't have enough heft to sway the global marketplace -- or more specifically Europe, where Gazprom dominates.

However, Russian gas exports to all countries declined by 19% from nearly 8.6 Tcf in 2008 to 6.9 Tcf in 2010, while European gas imports from all countries increased 5% from 16.2 Tcf in 2008 to 16.9 Tcf in 2010, according to Energy Information Administration data.

Almost all of a wide-ranging panel of Russian experts convened by Gazprom in May 2010 to consider the implications of shale gas cast doubt on the boom. For instance, concerning forecasts that domestic shale gas production could decrease U.S. liquified natural gas imports 40% by 2030, Anatoly Dmitrievsky, director of the Oil and Gas Research Institute at the Russian Academy of Sciences, said, "Even if these forecasts come true, according to our estimates Russian gas will be in demand on the U.S. market anyway, as the USA is interested in reducing the dependence on LNG supplies primarily from the Middle East and Central Asia."

Since then, Gazprom has only become more skeptical.

In a March 2011 interview in Gazprom Magazine, Vesvolod Cherepanov, head of Gas, Gas Condensate and Oil Production, heralded Gazprom's coalbed methane and gas hydrates pilot projects while casting doubt on shale, noting its sharp decline curves and potential environmental risks. "These factors make shale gas a local energy resource offsetting a decline in conventional gas production or its unavailability in the local markets," Cherepanov said.

The following month Alexander Medvedev, deputy chairman of the Gazprom Management Committee, told the magazine that U.S. shale producers weren't recovering their costs.

"This can't last forever and matching of supply and demand in the U.S. gas market is inevitable," he said. "Then the gas price will get back to normal, [and] that will make the U.S. market appealing to the LNG imports again. That's why we consider the present situation temporal. With its present prices the U.S. market is not interesting, but things will change soon."

The research firm ITG Investment Research recently estimated that the Marcellus Shale in northeastern Pennsylvania could generate a 10% rate of return on prices below $3/Mcf. Prices in that region averaged $3.43/Mcf as of Wednesday, according to NGI's Shale Price Indices.

The world's largest gas producer formed Gazprom Marketing & Trading USA (GM&T) in late 2009 to compete for North American LNG imports, aiming to supply 10% of the market by 2020, but shale upended that goal (see Daily GPI, June 10, 2009). "Shale gas is everywhere; there are gigantic reserves wherever there is conventional gas," John Hattenberger, president of GM&T said at a conference in early November (see Shale Daily, Nov. 1). "But will we see the same kind of impact elsewhere as in the United States? I don't know but I think the answer is no," because of environmental concerns, political pressure and a lack of infrastructure.

Although less of an immediate threat, Gazprom is hearing footsteps near home, where operators are conducting pilot projects in Poland and Ukraine (see Shale Daily, Nov. 7; Sept. 1).

If successful, something Gazprom doubts, those projects could upend the supply picture in Western Europe, which current relies on Russia for a quarter of its natural gas supply. The European Union is increasingly pressuring Russia to abandon long-term contracts based on oil prices, which Gazprom argues reflect the true cost of production, in favor of the spot market.

The shale revolution is still not a foregone conclusion in Europe. By one account, it could take another 10 years for Europe to realistically measure its resources (see Shale Daily, July 15).

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Natural Gas Intelligence (NGI), is a leading provider of natural gas, shale news and market information for the deregulated North American natural gas industry. Since the first issue of Natural Gas Intelligence was published in 1981, NGI has provided key pricing and data relied upon daily by thousands of industry participants in the U.S, Canada and Mexico as well as Central and South America, Europe and Asia.